Stay under Budget by Managing Data Variances

Rick Clough

Most companies are used to seeing variances between budgeted and actual costs in their utility financial reporting. However, because companies lack well-established energy reports, they miss out on critical visibility into their operations. Putting the appropriate reporting in place is actually very easy to do; however, understanding the variances that come from the data is a whole different ballgame.When looking at variances in your financial reports, you will need to identify what is driving your cost. Is it unit price? Changes in energy use? Where are these occurrences happening within your portfolio? Once you discover these answers, you will be able to report and resolve variances and take the appropriate action going into the future. In terms of the information needed to resolve, identify, and analyze those variances, there are three areas where you will want to focus your attention.

DOCUMENT BUDGET ASSUMPTIONS

When building your utility budget, make sure to budget for both consumption and unit cost. As the year unfolds, you can track how much energy you have consumed compared to what was estimated. You will also be able to see present energy costs against the budgeted benchmark.

Another set of budget assumptions that you will want to consider tracking are the rate change assumptions that you made on a state or utility level. Energy markets are unpredictable and volatile, so making assumptions around your contracts is important to staying under budget.

ACTUAL & ACCRUAL DATA

You will also want to look at your actual bills as they are received. It is advised that you make a consistent effort to look at these every month. You will be receiving utility bills throughout the year and you will want to make sure that you are tracking rebills or credits from prior billings so that you can accurately analyze your variances.

Accruals are also an important component of your utility financials to monitor. Many companies have numerous levels of financial accruals that also include utilities each month. Understanding how the utility numbers are incorporated into the accruals is key. Consider that each month you will have a new accrual that you’re booking while also reversing the accrual from the prior month. If there’s fluctuation in the prior month, then there will be a variance for the current month. Having insight into this process is something that can often be necessary to know because of the impacts your accruals have on your overall utility financials.

ANCILLARY DATA

Once you become consistent with correctly inputting, understanding, and removing any issues with your energy bills, you’ll have the visibility you need to look at the ancillary data. It’s important to have an open mind as to what is causing these types of variances to occur; it could be driven by outside forces, such as weather. Another example could be if a new facility becomes a part of your portfolio a few months earlier than planned, then you will need to account for the additional expense. Operational changes, like changing how a site is used or going from operating 12 hours each day to 18 hours, are another set of information that help you track, identify and explain those variances.

Managing your budget with built in data variances can be both tricky and time consuming. It’s important to work smart and communicate your findings to your stakeholders so that your company can make educated decisions about its energy use and cost and take appropriate action.